In his recent State of the Union address, President Obama unveiled a plan to allow more workers to save money. This MyRA savings plan will be a U.S. Treasury Bond-style product, allowing for individuals to contribute up to $15,000 per year, gain modest returns and enjoy a guarantee that they won’t lose principal.
The MyRA plan opts for a small, safe investment return —bonds currently offer under 3 percent annual returns. With inflation running around 1.7 percent, that’s barely any gain at all. There are better options than MyRA available to ensure a safe future through responsible saving.
First, if you have an employer-run 401(k) program, take advantage of it, especially if your employer offers matching. Corporate matching is basically free money. If I told you I could offer you a 100 percent return on your investment, you’d think I was an investment genius. With corporate matching you take, as an example, a $3,000 contribution and your employer instantly provides you with a 100 percent return by giving you an account balance of $6,000. Take every pop you can get through employer plans. Only a small percentage of American workers max out their 401(k) contributions.
Next, stock away money in a Roth IRA. This retirement plan uses after-tax dollars, but all the growth you make in the future will be tax-free. It is crucial to understand the importance of taxes on your money. Think about your first job—when you got that first paycheck, it wasn’t what you thought it would be, because of the taxes. A Roth IRA allows you to make withdrawals in retirement without paying taxes on the increases in your investments. You get the full benefit of your savings and diligence.
Finally, seek qualified financial advice on investment products. There are a full array of products that provide safe, reliable gains that well outpace the MyRA’s conservative projected returns. Investment instruments can be intimidating, but with a trusted investment professional, you can find something that fits your goal, style and retirement needs.
Over 50 percent of Americans have less than $10,000 in retirement savings, which is a scary thought. Social Security will only be able to provide a fraction of the money most people need in retirement. As our life expectancy extends, many Americans will spend a staggering 20 to 25 years in retirement, accompanied by the higher costs of medical care brought on by aging.
By showing discipline and forethought in the short-term, you can enjoy the retirement you want later in life.